The deputy governor of the Bank of England has been forced to deny that it condones market manipulation after it was dragged into an investigation over foreign exchange rate-fixing claims which he agreed could be "enormously damaging" to it.

Andrew Bailey told MPs that the Bank was cooperating with an investigation by the Financial Conduct Authority (FCA) in the wake of allegations over a meeting between officials on a Bank sub-committee and traders in 2012.

Mr Bailey said it took "very seriously" claims in a Bloomberg story earlier this month about the meeting, adding that governors had been aware since October.

The report said bank traders had admitted they shared information about customer orders before currency benchmarks were set - a practice at the heart of the probe into market manipulation.

They were said to have been told there was no policy on these communications and banks should make their own rules.

Mr Bailey told the Treasury Select Committee: "The Bank of England does not condone any form of market manipulation in any context whatsoever.

"We are supporting the FCA's investigation. We are also playing a leading role.

"The governors of the Bank have taken the claims about the meeting with Bank officials very seriously since we first heard about these allegations in October."

He said a review led by the Bank's senior counsel, supported by external legal advice, had been launched.

"We have no evidence to substantiate the claim that Bank officials in any sense condoned or were informed of price manipulation or the sharing of confidential client information but... we do not regard that review as over.

"We will take into account any information we get."

Mr Bailey is head of the Bank's Prudential Regulation Authority, which has taken over many responsibilities from the former Financial Services Authority.

Labour MP Pat McFadden said: "If there was corroboration that the Bank had somehow turned a blind eye to that kind of activity, it would be enormously damaging to confidence in the Bank in the new regulatory environment."

Mr Bailey said: "That is why we have taken it so seriously, I agree with you on that.

"You can be assured that the governors take the whole question of the reputation and the integrity of the central bank extremely seriously. It's the most important thing we have."

Last month, FCA chief executive Martin Wheatley told the same committee that allegations surrounding foreign exchange trading were "every bit as bad" as the Libor rate-rigging scandal, which has cost banks billions in fines.